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4 Stocks to Make the Most of the Halloween Effect

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Analysts do apply a number of techniques, including technical and fundamental analysis, to determine the value of an asset before placing a buy order. Some analysts may even use unorthodox methods such as cycles and dates to take a call. And one among the followed trends is the Halloween Effect, which shows that stocks tend to perform well from November through May. This is also known as the Halloween Indicator or the Halloween Strategy.

While the stock market, historically, gained in the Halloween-through-May Day period, or the so-called “winter” months, they tend to remain more or less flat during the “summer” months (May-October). For instance, since 1950, the Dow has registered an average gain of 7.5% during the November-April period, while the blue-chip index yielded a meager 0.3% in the May-October period. Results have, in fact, shown that the strategy of buying in November and selling in May has been successful 80% of the time when employed within a time span of five years, and more than 90% in a 10-year time frame.

But, it’s just not the Halloween Effect that perks investors up. The Fed recently trimmed the benchmark interest rate for the third straight meeting which bodes well for Wall Street. The S&P 500 in particular tends to extend gains in the six-and-12 month period following three consecutive interest rate cuts of a quarter percentage point each, according to data from LPL Financial. The S&P 500 had climbed 10% in the six months and 20% in the 12 months following a trio of rate cuts of 25 basis points each in the years 1975, 1996 and 1998.

How to Play the Halloween Indicator?

Since a buying opportunity maybe playing out in the equity market, investing in solid stocks seems prudent. These stocks not only possess a Zacks Rank #1 (Strong Buy) but are also poised to gain significantly in the near term. Such stocks flaunt a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum and the score is a weighted combination of these three metrics. Such a score allows you to eliminate the negative aspects of stocks and select winners. You can see the complete list of today’s Zacks #1 Rank stocks here.

The stocks are, undoubtedly, CBIZ, Inc. (CBZ - Free Report) , Enova International, Inc. (ENVA - Free Report) and Kinross Gold Corporation (KGC - Free Report) .

CBIZ provides professional business services, products and solutions that help its clients manage finances and employees. The Zacks Consensus Estimate for its current-year earnings has moved 0.8% north over the past 60 days. The company’s expected earnings growth for the current quarter is 100%, higher than the Consulting Services industry’s estimated rally of 29.7%. The stock has outperformed the broader industry so far this year (+39.8% vs +25.4%).

 

Enova International is a technology and analytics company, providing online financial services. The Zacks Consensus Estimate for its current-year earnings has moved up 2.3% over the past 90 days. The company’s expected earnings growth for the current quarter is 98.1%, higher than the Financial - Consumer Loans industry’s estimated rally of 22.1%. The stock has outperformed the broader industry in the past month (+17.4% vs +3.4%).

 

Kinross Gold engages in the acquisition, exploration and development of gold properties. The Zacks Consensus Estimate for its current-year earnings has risen 14.8% over the past 60 days. The company’s expected earnings growth for the current quarter is 300%, higher than the Mining - Gold industry’s estimated rally of 297%. The stock has outpaced the broader industry so far this year (+48.1% vs +40.7%).

 

Having said that, does the Halloween trend hold true for the Bitcoin market? Historical data does suggest that Bitcoin gains from Oct 31 through May. In 2015, during the Halloween effect time frame, Bitcoin price gained around 41%. And in the year 2016, Bitcoin yielded 117% for investors.

What’s more, Bitcoin hit an all-time high of $20,000 during the Halloween effect time frame in 2017. In 2018, Bitcoin may have retraced from that high point but still gained immensely from October through May. By the way, China president Xi Jinping’s blockchain push has already given Bitcoin the required momentum this year (read more: Xi's Blockchain Push a Boon for Bitcoin Stocks).

Thus, investors can certainly consider Bitcoin stock Square, Inc. (SQ - Free Report) that is poised to make the most of the Halloween effect as well as China government’s push for blockchain technology adoption. The mobile payment company is now allowing users to buy and sell cryptocurrency through its Square app. Notably, Square’s comprehensive commerce ecosystem and accelerated business growth are major positives.

Square also flaunts a Zacks Rank #1. The Zacks Consensus Estimate for its current-year earnings has moved 2.7% north over the past 60 days. The company’s expected earnings growth for the current year is 63.8%, higher than the Internet - Software industry’s estimated rally of 89.4%. The stock has outdone the broader industry over a two-year period (+70.4% vs +13.5%).

 

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